Stock Market & Crypto Currency Update – November 13th, 2023
Bottom Line: My first rule of money is to never let your money and emotions cross paths. The purpose of this story is to inform you as to what's possible in a near worst-case outcome for the financial markets. The reason is to understand what's possible, though unlikely, so you can plan soundly for your financial future unemotionally. The US stock market is the greatest wealth creation machine in the history of the world. Likewise, cryptos have created generational wealth for many who were early, however most investors in the crypto space have now lost money on their original investments. I want you to benefit from investing without making emotional mistakes with money. Historically, when investors attempt to time the market, they end up worse off than if they’d stayed with their original plan over 90% of the time. This is all about combating those types of mistakes.
Here's how far the DOW, S&P 500 & Nasdaq are from their record highs:
- DOW: -7% (flat last week)
- S&P 500: -8% (+1% last week)
- Nasdaq: -14% (+2% last week)
Historically the holiday season brings about the most wonderful time of the year for investors with November and December producing the two best months of the year for stock market returns. After three months of selling for stocks the rally continued for a second consecutive week. On the back of an earnings season for companies that started weak, but consistently improved with 4.1% earnings growth year-over-year by the end of it, there was reason for optimism beyond simply having the Federal Reserve stay on the sidelines in regard to potentially raising interest rates further. Earnings had declined for three consecutive quarters so a return to growth was and is encouraging. That said there are headwinds ahead.
On Friday, Moody’s cut the U.S. credit rating outlook once again, and this time to negative from stable. That may well weigh on investors early this week. The ratings downgrade was due to the federal government’s record debt spending and accumulation along with another Congressional looming spending deadline of this Friday before a potential partial government shutdown. Quoting Moody’s:
In the context of higher interest rates, without effective fiscal policy measures to reduce government spending or increase revenues. Moody’s expects that the US’ fiscal deficits will remain very large, significantly weakening debt affordability.
Those considerations will dominate market sentiment this week. As for cryptos...
For a fourth straight week optimism reigned as regulation seems more favorable for the space. Bitcoin after touching a 52-week high most recently, bitcoin added another $2,000 to sit above $37,000. Ethereum added another $100+ and is over $2,000. Meanwhile, the BitwiseETF, which represents the top 10 cryptocurrencies, had another big week, reaching the highest levels it’s traded since January of 2022. Optimism about regulators potentially allowing additional crytpo ETFs to hit the market – including a spot bitcoin ETF, continues to drive performance. Additionally, the amount of publicly available bitcoin is at the lowest level since 2018 creating a supply/demand imbalance which is helping push prices higher. Questions remain about the regulatory environment – but the cloud over the sector from that perspective seems to be lifting a bit. I can’t provide value analysis for cryptos currencies because they retain no inherent value, but I can for stocks because they do...
Here’s where the stock market stands based on fundamentals using the S&P 500 as benchmark.
- S&P 500 P\E: 24.39
- S&P 500 avg. PE: 16.03
The downside risk is 34% based on earnings multiples right now from current levels. That’s 1% more risk than a week ago as stocks were higher but with fundamentals close to unchanged. It’s 23% less risk than the highs reached last year. If a short-term decline at those levels wouldn't affect your day-to-day life, you're likely well positioned. If that is a problem for you, you should probably seek professional assistance in crafting your plan that balances your short-term needs with longer term objectives.